NanoString Technologies, Inc. (NSTG) on Q2 2021 Results - Earnings Call Transcript
Operator: Good day, and thank you for standing by. Welcome to the NanoString Second Quarter 2021 Operating Results. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. Without further ado, I'd like to welcome your first speaker for today. Mr. Doug Farrell, Vice President of Investor Relations. Sir, the floor is yours.
Doug Farrell: Thank you, operator. Thank you, everyone for joining us today. On the call today is Brad Gray, our President and CEO; as well as Tom Bailey, our CFO. Earlier today, we released our financial results for the second quarter of 2021. During this call, we may make statements that are forward-looking, including statements about financial projections, the impact of COVID-19 pandemic, future business growth, trends and related factors, prospects for expanding and penetrating our addressable markets, our strategic focus and objectives and the development status and anticipated success of recent and planned product offerings. Forward-looking statements are subject to risks and uncertainties, many of which are beyond our control, including the risks and uncertainties described from time to time in our SEC filings. Our results may differ materially from those projected, and we undertake no obligation to update these forward-looking statements. Later in the call, Tom will be discussing our financial results and 2021 guidance. We have prepared, as a supplement to GAAP financial measures, selected non-GAAP adjusted measures, the calculation of which are described in detail in our press release. Throughout this call, all financial measures will be GAAP, unless otherwise noted. You can also find reconciliation of GAAP to non-GAAP as well as the description, limitations and rationale for using each such measure in this afternoon’s press release are also available under the Investor Relations page on our website. I'd like to remind everyone that we'll be participating in the UBS Genomics 2.0 Conference next week, as well as the Baird and Morgan Stanley health conference -- Healthcare Conferences in September. We look forward to having an opportunity to speak with many of you there. Now I'd like to turn the call over to Brad.
Brad Gray: Thanks, Dough. Good afternoon and thank you for joining us today. So, momentum of our Spatial biology franchise continue to increase each quarter. We continue to expand our lead and translational research on the rapid adoption of NGS readout for GeoMx is opening up a vast new market in basic discovery research. Our Spatial Molecular Imager is bordering interest for existing GeoMx customers, as well as single cell GeoMx researchers who are engaging with NanoString for the first time. Meanwhile, our nCounter franchise is humming along, continuing to generate strong instrument placements and great science more than a decade after its introduction. Our first strategic objective for 2021 is to extend our lead in spatial biology through the broad adoption of the GeoMx Digital Spatial Profiler. In the second quarter, we generated a record number of quarters for GeoMx DSP instruments that delivered sequential growth and GeoMx consumable pull-through per system. A GeoMx instruments orders grew approximately 50% year-on-year at the top end of our guidance range of 40% to 50% growth. For recent launches of our Human and Mouse Whole Transcriptome Atlas, or WTA propelled annualized consumable pull-through to $94,000 per system during the second quarter near the top of our previously provided guidance range from $85,000 to $95,000. The impact of WTA on consumable pull-through is pushing our GeoMx revenue expectations for 2021, towards the top half of our previously guided guidance range and importantly, increases our estimates for the long-term value of our GeoMx franchise. Expanding the use of next generation sequencing to read out humans experiment is a key growth catalyst for spatial business. The recent launches of our first Whole Transcriptome products are driving the momentum. These are the first system wide products that we've offered. And they are appealing for researchers in both translational and discovery research. During the second quarter, approximately 50% of new GeoMx instruments were sold to researchers intending to use NGS as their primary readout. In addition, many researchers when they usually use GeoMx systems with nCounter readout have now begun to utilize that phase with NGS readouts assays. So far this year approximately one-third of our GeoMx installed base has ordered either a Whole Transcriptome Atlas or our cancer consortium assays. Together, these NGS readout assays accounted for roughly two-thirds of total GeoMx consumable revenue in the second quarter. These affected the expanded research applications of our NGS enable assays, whose drive broad adoption units. While the higher revenue per sample of these assays we will continue to increase consumable pull-through system through the balance in the year. During the second quarter, we expanded our NGS enabled GeoMx portfolio with the launch of the mouse Whole Transcriptome Atlas. The mouse is the most important models system for basic discovery research. And our market research suggested may represent up to 30% of the spatial biology TAM. In February, we began offering the mouse of WTA through our Technology Access Program or TAP. This new offering is generating strong interests from researchers with diverse areas of biology, including immunology, neuroscience, infectious disease, and developmental biology. S Our Technology Access Program enables researchers to test drive GeoMx, while evaluating an instrument purchase, and provides us with another strong indicator of customer enthusiasm for NGS readout. We generated more than 90 new TAP orders in the second quarter more than doubling the number of projects over the prior year. With NGS readout we have done about 90% of the new projects. Our Whole Transcriptome Atlas is driving that's the basic discovery research we continue to build on our track record of leadership among translational researchers focused on human disease. Management has been serving the translational research community for more than a decade, and we have a strong brand and deep understanding of their unique requirements. We understand a while robust and reliable results from Formalin fixed paraffin embedded or FFPE tissues, the tables pace for a platform, translational researchers demand much more. They want an automated solution that can provide high sample volumes, and provide consistent side to side performance needed for collaborating across networks. They also want to analyze both, RNA and protein on the same platform. GeoMx's this spatial biology platform that meets all of these requirements, helping establish its market leading position in translational research. To be clear, while other companies are adapting their technology to be FFPE compatible, NanoString platforms were developed using FFPE strong lead outset. Recent product updates from other companies matter shifted the competitive landscape more impacted our leadership and translational research. Among other requirements translational researchers by GeoMx provide protein assays enabled by a portfolio of several 100 validated antibodies and that's in-class plex. For the researchers focused on protein essays, nCounter readout remains the preferred configuration, and represents approximately 40% of GeoMx systems sold in Q2. Half of these systems were about 20% of all GeoMx systems sold during the second quarter were packaged as GeoMx plus nCounter bundles. In most cases, these bundles are going to translational researchers who are new NanoString customers, further extending their lead in this market. Overall GeoMx continue to provide a strong growth driver for 2021 and is setup for long-term success, transforming our company. Our second strategic objective for 2021 is to advance the development of our Spatial Molecular Imager and to see the market for the commercial launch that’s plan for next year. Molecular imaging is shaping up to be an important in market that we expect will be highly compliment rates to spatial profile, great progress in developing our Spatial Molecular Imager or SMI, which remains on track to ship commercial instruments in the second half 2022. Our SMI is expected to be the best-in-class and the statement from other imagers in several important ways. First, we expect the SMI to lead the class with the highest plex and the highest sensitivity. Second, we expect SMI will show superior performance in assessing tissue samples; and third, unlike competing platforms, SMI will launch with both RNA and protein assays. To develop the technology access program for SMI and we've been fielding interest from a diverse set of researchers. Today about half of the SMIs have projects that come from existing GeoMx customers, while the other half come from single-cell researchers just beginning to embrace spatial biology. The experiments we are running spanned many areas of biology, including oncology, immunology and neurology. Some researchers are interested in using spatial molecular imaging to create an atlas themselves within a tissue, while others are looking to characterize interactions between individual cells are separate server is already oversubscribed for the year that we've been allocating our capacity to high impact science with key opinion leaders. Researchers continue to reach out with interesting projects, creating a reservoir demand that will keep us busy well into next year. Our third strategic objective is to return our nCounter business to the growth dynamics seen prior the COVID-19 pandemic. Our nCounter franchise remains robust with our installed base increasing about 14% over the prior year, and customers publishing another 300 reviewed papers during the recent quarter, which is a major milestone of our nCounter business in Q2, selling over 1,000 systems. As of mid year, our 2021 instrument revenue, almost exactly matches what we generated during the same period in 2019. This signifies a full recovery of instrument placements to pre-pandemic levels. There’ll be expected trend to continue through the second half of the year. In Q2, we generated another sequential increase and pull-through to about $57,000 per system annualized with recovery most notable in North America, expected to continue recovering from pandemic lows during the second half. Oncology researchers continue to embrace nCounter. We recently entered an exciting collaboration with the Parker Institute for Cancer Immunotherapy focused on the molecular characterization of cellular therapies. The objective of this collaboration is to define the characteristics that will make a cell therapy effective, providing a standardized approach to developing CAR-T regimens that may improve patient outcomes across all cancer types. The collaboration will leverage the cell therapy expertise of Parker's extensive network of world-class research centers, and Parker plans to make the findings publicly available to the scientific community. In another exciting development, we recently entered a long-term umbrella contract to supply the National Institutes of Health as part of its iNIH program. The NIH NCI sponsored 1,000s of clinical trials per year. And under this agreement, NIH researchers will now have expanded access or nCounter platform to assess the immune data of solid tumors for patients in clinical trials. We continue to push nCounter in the new areas beyond oncology. In the second quarter, about half of our nCounter systems are sold through applications outside oncology and consumable growth with especially stronger infectious disease and Immunology. During Q2, we launched a new Stem Cell characterization panel for the analysis and optimization of cell lines using the development of novel therapeutics. Our new panel may have eight essential component of stem cell biology, and provides a standardized assay for evaluating factors that impacts the viability in the development and manufacturing process. We hope it will help researchers scale up the Stem Cell therapy workflow advancing this promising field. To summarize, we're making great progress on our strategic objectives with nCounter returning to grow, genomics reaching new customers, doubt and SMI generating excitement ahead of its 2022 launch And now I'd like to turn the call over to Tom to review the details of our operating results.
Tom Bailey: Thanks, Brad and thanks all for joining us today. For the second quarter of 2021, products and service revenue was $33.6 million, representing year-over-year growth of 59%. Q2 GeoMx revenue was $11.2 million, up 66% as compared to Q2 2020 and above the high end of guidance we provided in May. $7.4 million was from approximately 30 instruments shipped and $3.8 million was from consumable sales. Annualized GeoMx consumable pull-through was about $94,000 per installed system in Q2. Our nCounter, total revenue for Q2 was also about the high end of our main guidance. Q2 instrument revenue was $4.4 million representing year-over-year growth of 25%. nCounter consumable revenue was $14.2 million representing year-over-year growth of 80%. Annualized consumables pull-through was about $57,000 in Q2. Service revenue was about $3.8 million for the quarter, representing 29% year-over-year growth and driven by new GeoMx DSP TAP projects and increased service contract revenue from our growing instrument installed base. Turning to margins and expenses. I'll provide results in a non-GAAP or adjusted basis, which removes the impact of stock-based compensation, depreciation and certain one time items. Please refer to our press release as well all the exhibits we have posted to our Investor Relations web page. For detailed information on our non-GAAP or adjusted measures are prepared. Q2 adjusted gross margin was 56%, consistent with our annual guidance range, at about a 400 basis point improvement compared to Q2 of last year driven by both the growth and GeoMx DSP revenue and the recovery in nCounter consumable sales compared to the prior year period. Adjusted R&D expense was $14.5 million, an increase of 6% year-over-year. R&D was higher and compared to the prior year period due primarily to increase personnel and product development costs related to our SMI program. We expect R&D expense will increase through the balance of the year as SMI development continues. Adjusted SG&A expense was $21.7 million, an increase of 27% year-over-year. The Q2 SG&A expense increase was due primarily to investments made in our spatial biology related commercial initiatives, including investments to expand our sales force, and our service and customer support groups. Adjusted EBITDA loss was $17.2 million, an improvement of 12% as compared to the prior year. We ended the quarter with approximately $398 million of cash, cash equivalents and short term investments. Turning into guidance, for Q3, we expect product and service revenue to be in the range of $36 million to $38 million, representing year-over-year growth of 20% to 26%. This range assumes $24 million to $25 million of nCounter revenue and $12 million to $13 million of GeoMx revenue. Regarding our full year guidance, we're raising our full year guidance range for GeoMx pull-through to $95,000 to $100,000 per system for year, and while annualized pull-through of approximately $100,000 to $105,000 for the second half of 2021 based on strong early consumable utilization at NGS enabled sites. We are also affirming our previous guidance 40% to 50% growth in instrument orders compared with the prior year. As a result, we are updating our full year GeoMx revenue guidance range to $48 million to $50 million representing annual growth of 38% to 43%. Our nCounter instrument demand has rebounded to pre-pandemic levels globally, and our expectations for nCounter instrument revenue remain unchanged. We are narrowing our full year guidance for consumables pull-through to $60,000 to $63,000 per system per year, implying approximately $63,000 to $66,000 for the second half of 2021, and reflecting a rebound in consumables demand in North America has been partially offset by a modestly slower pace a pandemic – pandemic recovery in Europe and Asia. As a result of these updates, we are narrowing our full year encounter revenue expectation to $95 million to $97 million representing annual growth of 24% to 27%. The combined impact of these updates is an updated full year product and service revenue guidance range $143 million to $147 million, representing annual growth of 28% to 33% with the midpoint of our total revenue guidance remaining unchanged. We are also affirming, our prior leader gross margin operating expense, adjusted EBITDA loss, outlook amounts as provided on our March 1. Additionally, as a reminder, we did not expect any material collaboration revenue to be recorded in future periods. Now, I'll turn the call back over to Brad for closing comments. Brad Gray Thanks, Tom. As we enter the second half, the year is shaping up just as we have envisioned. Our new all Transcriptome Atlas are driving adoption and increasing consumable pull-through, enhancing the long-term value of our spatial business. Our deep understanding of customer needs, combined with the unique through-puts and multi element capabilities of GeoMx are expanding our leadership in translational research. Scientists across many fields of research are intrigued by our spatial molecular imager and are lining up to perform them versus permits. Meanwhile, our nCounter franchises are still achieving important milestones within a decade after its introduction, our momentum is strong and we are confident in both our near-term growth prospects, as well as the long-term value of our spatial biology franchise. With that, we now want to open the line for your questions.
Operator: Thank you, sir. Our first question comes from the line of Tycho Peterson from JPMorgan. You may ask your question.
Julia Qin: Hi. Good afternoon. This is Julia on for Tycho today. Thanks for taking the question. So I guess in terms of the current mix, I understand, you have two-thirds academic and one-third biopharma for GeoMx. How do you see the mix kind of, changing going forward with the whole Transcriptome launch? And how should we think about the relative runways between academic versus biopharma? I guess the former is much more fragment in market. But for the latter, it's, maybe more ready to kind of, in subtype into translational studies. So just help us think through the relative run rate there. Thanks.
Brad Gray: Thanks for the questions, Julia. You're right, our installed base for GeoMx is about two-thirds academics and one-third biopharma. Initially, when we launched our whole Transcriptome assay, we imagined it would appeal more to the basic discovery researchers do defined predominantly in academic research settings. And so we had projected that over time, the fraction of GeoMx is going to academic research with actually may increase. As I mentioned, in my prepared remarks, we're seeing that the NGS readout capability of GeoMx, including the whole Transcriptome assay are appealing both to basic discovery researchers and translational researchers. So at this stage, I think we should expect to continue to see an approximately two-thirds, one-third split from new GeoMx instrument placement between academics and biopharma customers.
Julia Qin: No, that's helpful. And then, on kind of the biopharma in translational research side, is there any plan or room to kind of increase the GeoMx throughput, so you can actually use it in clinical trial.
Brad Gray: The GeoMx throughput is already extremely high, relative to all of their spatial biology platforms, and is probably sufficient to reduce in a clinical trial. The nominal throughput of GeoMx system is about 20 samples per day. And there's really very few clinical trials that would ever be enrolling patients at a faster pace than that are needed to screen patients for inclusion at a faster pace than that. So we feel really good about the capability of the GeoMx system to serve the translational research market, including clinical trials. So of course, most of our use of GeoMx and translational research today is the retrospective analysis of FFPE samples that were collected in clinical trials. But we think that the throughput could hypothetically allow the prospect of analysis at the enrollment of a clinical trial as well without any material changes to what our GeoMx system is.
Julia Qin: Got it? Very helpful. And then lastly, I know you gave color on the top kind of, order for GeoMx. Could you share the same for SMI? How many early customers you're working with and any upcoming publications we should be pay attention to?
Brad Gray: So in the past, we said that our plan for the SMI path for 2021 which enroll 15 to 20 projects worth, and we're fully subscribed at that level now. But we continue to collect excess demand, as I mentioned in my prepared remarks, those interesting projects are sort of on standby until we are able to expand our vast capacity in 2022. We are previewing any particular forthcoming publications at this point in time. But look for incremental news on SMI in the fall, and in the fourth quarter. As some of these TAP projects begin to make their way through completion and into appropriate public presentations.
Julia Qin: Great. Thanks so much, Brad.
Brad Gray: Thank you, Julia.
Operator: Our next question comes from the line of Daniel Arias from Stifel. You may ask your question.
Daniel Arias: Good afternoon, guys. Thanks for the questions. Brad, on the consumable side and the raise on the GeoMx pull through average, can you maybe just add some color to the elements in play there? I mean, it sounds like next-gen usage is up nicely. So what are you seeing, just in terms of assay mix, to your point, before and the impact that that's having, maybe sample numbers relative to your initial expectations? And then any other sort of residual comments that you might have on utilization trends that are sort of driving that rate forward?
Brad Gray: Yes. Thanks for the question, Dan. I think it's been incredibly exciting and even surprising to us, the broad interest in the Whole Transcriptome Atlas assay. In the past, you've heard us talk about the whole Transcriptome Atlas as our gateway assay into just the discovery market. But what you've heard in our prepared remarks is that, the entirety of our installed base is intrigued by this assay and is beginning to adopt it. That drives the overall dollar per sample up for our entire installed base and is translating into the second raise in our consumable pull-through guidance that you heard today. I think that, because most customers are still in their, call it, trial usage phase of the Whole Transcriptome Atlas assay, I think it's too early to characterize exactly what their steady state run rate of assays per system per year would be. But, clearly, the overall dollar per assay average for our installed base is going up. And that's, of course, a key driver of the long term value of our spatial biology franchise, which was what makes it so exciting.
Daniel Arias: Yes. Okay. A couple of quarters you had said that you thought that, if you fast forwarded to the end of this year, Whole Transcriptome could come to make up more than like half of what's done versus cancer transcriptome? Do you still think that makes sensible assumption?
Brad Gray: Yes, I do. I mean, I think that the NGS readout assays, you've cancer Transcriptome Atlas and Whole Transcriptome Atlas, together accounted for two-thirds of our consumable revenue on genomics and the second quarter. So the Whole Transcriptome assay is probably already very close to half of the utilization of our total installed base. And I think that will just grow what we're going to -- I think, that'll strengthen up the balance of the year.
Daniel Arias: Okay. Okay. And then just maybe on the instrument side. I mean, you guys have done a really nice job, just sort of keeping the GeoMx business steady throughout the pandemic. So certainly, through those, there for sure. I'm wondering when you think we start to sort of see a step up on orders and installs, just in the coming quarters? Obviously, the pull through is a telling sign on usage or one of them anyway, not going up. But it does feel like the enthusiasm around the spatial market just sort of being on the cusp of an inflection can start to show up in the adoption rate, especially since it feels like the constraints on just getting into the lab are not as high. So, totally appreciative of the fact that things are not 100% out there, I do get that. But is it fair for us to model acceleration in the placement rate going forward from the 30 or so that you've been on for a while?
Brad Gray: Yes. I mean, I think, yes -- just so, first, let’s separates orders and revenue recognition, because those are really important different dynamics. So as you know, in the first half of this year, both Q1 and Q2, our order rate has gone up approximately 50% year-on-year. So that is -- and that's the best indication of actual sort of real time demand from the market for GeoMx. So that's growing at a very strong rate, at the top end of our guidance range for the year, I think we're maintaining our 40% to 50% growth guidance for the full year on orders. So -- and then of course, that will because when you look at the competitors for the back half of last year, that will increase orders beyond the 30 or so placements that you've seen for the past couple quarters. And given that we're in a one to one kind of book-to-bill scenario now, where each order is more or less fulfilled with an instrument shipment, you will begin to see instruments growing beyond 30 in the second half. That being said, part of your question seemed to imply then that you were wondering if there was going to be an enormous step change or inflection with respect to instrument revenue. I don't think that's the natural dynamic of this market. We are marching orders of at 50% a year, that's a great cliff, I don't expect that suddenly the spike to a higher rate. If we can sustain that pace of instrument order growth through the balance of the year and then you are going to sustain that type of growth of a 40%, 50% range even in the next year. We're going to build a tremendously valuable Spatial franchise without the need for anything that I would characterize as a particular inflection.
Daniel Arias: Yeah. No, no, I certainly wasn't thinking big step up. I was just -- I'm going back and I'm looking at the installs per quarter and I'm saying "Okay, you guys actually placed 35 systems in Q3 of last year, which again, is a huge accomplishment given how difficult the operating environment was then. So, for those of us that are just trying to understand the velocity or the trajectory of the spatial market, is it fair to assume that if we push into the end of this year or the beginning of next year, you'll start to see that number creep up that's just says, "Hey, there are more people out there that are looking to do spatial experiments. They're ordering boxes. And you guys are putting more than in lab that you did, say a year ago?
Brad Gray: Yeah, certainly, that growth is expected in the second half. And then if you just a worth of math for you. We're maintaining our 40% to 50% guidance range for orders, given where we are in the year, that would imply a range of sort of 30 to 35 orders in the third quarter and 35 to 40 orders in the fourth quarter. And that just worth math on grow on the 90s that we did full year 2020 and the six years then year-to-date. So that gives you a sense of what's implicit in our guidance then, and as we can keep rolling into replacements and that kind of range, we're going to be able to place.
Daniel Arias: Yeah. Absolutely. Okay. Thanks, Brad.
Operator: Our next question comes from the line of Catherine Schulte from Baird. Your line is now open.
Catherine Schulte: Hey, guys, thanks for the questions. I guess first, can you just walk through what you're seeing on the reopening side? Where are different regions in terms of activity levels versus pre-COVID levels? And then where are you guys seeing when it comes to access to customer sites?
Brad Gray: Yeah, great question, Catherine. So as we alluded to, in our prepared remarks, our best indicator for customer activities and the place where the COVID-19 pandemic impacts us the most is on nCounter consumable pull through. And we've seen, I'd say an uneven pandemic recovery geographically. In North America, our business is almost back to the pre-pandemic utilization rate of nCounter that we experienced in 2019. That being said, in EMEA and APAC, we remains substantially below what our 2019 utilization rates for and we attribute that to slower recoveries from the pandemics in those regions. That may or may not be the same as what other companies are seeing but at least within our installed base, which is focused primarily on cancer research, and to a lesser degree on immunology and neurology that's what we're seeing. Now importantly, maybe I'll just add, none of that pandemic recovery seems to be impacting the placement of encounter instruments, which are back on the 2019 pace or the pace of genomics instrument orders, which are in line that has been at least a competence of our guidance range so far this year.
Catherine Schulte: Yes, got it. And I know you guys have talked about hiring about 100 new reps, how is that hiring process going? Where are you in terms of those hires? And how should we think about a potential cost impact?
A – Brad Gray: Yes, we're about three quarters the way through hiring those 100 reps. We've made good strong progress, especially in North America, we're hiring. It's fast and simple. The places we still have hiring $100 underway is more in Europe, and Asia where it just takes longer to hire people. But we're pleased with the progress. I think we'll begin to start to see the impact of those reps. Later this year, it usually takes six months for a rep to become effective once they've joined and been trained. So people were hired in the fall – in the second quarter with the getting to be effective and of course – and then of course, we'll have a full- year of their impact in 2022.
Catherine Schulte: Got, it. If I could sneak one more in. I was just curious, if we could talk on the innovation roadmap for GeoMx from here. You guys have three different encounter platforms? Are there different iterations of GeoMx that you intend coming out over the next several years?
A – Brad Gray: Yes, for now we're focusing all of our GeoMx innovation on these assets front and the software front. You know, we believe that the combination of price point, footprint and throughput that that our current GeoMx system has is appealing to really poor labs across both the discovery and the translational market segments. And what we want to do is continue to innovate on the consumables that will appeal to a larger number of customers. So obviously, the whole transcript on assays with a single most important consumable that we've introduced. But we're also continuing to expand our protein library, and fields beyond cancer, we're continuing to look at custom assay options for GeoMx that would allow us to address biology that takes place outside of the human or mouse model. Those are some of the consumer motivations. And then separately, we're learning a lot from our customers on how they want some store, to process and the manipulated data that's generated in spatial biology. And we're moving towards more sophisticated software tools that will improve the customer experience and hopefully, drive even higher utilization systems that are out there. So today, we don't have a specific plan with respect to instrument innovation. But you know, certainly we will update you over time that roadmap develops.
Catherine Schulte: Great, Thank you.
Operator: Our next question comes from the line of Tejas Savant of Morgan Stanley. You may ask her a question now.
Q –Unidentified Analyst: Hey guys good evening. Thank you for the time. This is Edmund on for Tejas. Just wanted to circle back on the recovery trends and your nCounter consumables. I know last quarter, you guys have called out, EU as a pocket weakness. I was wondering if you could provide some additional color on the recovery pace specifically for the EU region. And in terms of your guidance, what's baked into it for -- I guess, delta variants and worsening COVID impacts?
Brad Gray: Yeah, so maybe I'll take the second part of that question first. I think our guidance today on nCounter consumables does begin the current uncertainty with respect to the Delta variant. And we're watching that in real time as everyone else is, that's part of the reason that we're no longer projecting that we'd be at the top end of our nCounter previously provided guidance range, because with this uncertainty, I think we can only expect that the recovery will be on pace or a little bit slower than we had -- might have been originally imagined. But I do not see it getting any worse than as embodied in our updated guidance range today. With respect to Europe, I'm not really in a position to provide too much in the way of additional color. I mean, I will say it's worth remembering that the areas that are weak, that are relatively weak in terms of demand, which for us are Europe and Asia, are the same regions where we work through distributors in many cases. And so, some of what we're likely to be seeing in terms of a slower recovery of our business in those regions, is confounded by the fact that distributors may be less -- more negatively impacted in their own business operations and data for you be in a direct market. So now I will just add that, I think that's probably the only color I can really add.
Q – Unidentified Analyst: No, that's super helpful. And then just turning quickly to the SMI TAP program. I know you guys have said previously, is more – just to make sure the development of the contract on the SMI and so we find the visual and analytics tools as well. Can you provide a brief update on how the development has progressing on these two fronts in the TAP program?
Brad Gray: We're happy to. Yeah, so one of the thing that the TAP allows us to do is see where the demand is from customers in terms of key parameters like the amount of area of a tissue that they want to analyze, the number of targets that they want to analyze, and whether the question they're asking is really more about building an atlas of cells, just the map or whether it's something that is actually trying to prove how any two individual cells are interacting. And so those are all very different use cases, each of which would inform a different part of the design choice of the instrument, the consumable and the software. We have prototype software for presenting and visualizing spatial molecular imaging data that we've been able to present some of the earliest TAP customers with and to get the real time feedback on how they would explore their data. And, you know, after a while, I don't want to say particular insights, I can say, this is incredibly valuable headed at just the right time and our product development effort to continue to evolve with requirements. So more than being in a position at a time in the future to demonstrate those tools more broadly.
Q – Unidentified Analyst: Got it. Thank you for that. And then one final one for me. Stepping back, looking at higher level and given the recent emergence of participants in the spatial biology field, what are some of the key competitive advantages you guys are seeing at NanoString, I know you've previously highlighted the $1,000 capability and you earlier alluded to a higher throughput on the GeoMx, other key factors that have been jumping out? And separately, is there anything to know in terms of traction for some of these platforms launched earlier this year from your side?
Brad Gray: Yes, spatial biology is truly the next revolution in the field of biological research. And it's understandably attracting a lot of innovators. There's innovators from larger companies like us, and then many startups along the way. I think across the molecular imaging and the profiling categories, NanoString really leverages many of the same competitive advantages. One is, we've been in business serving researchers for over a decade and I think we have a deep and intimate understanding of what's required by the market, particularly amongst translational researchers. Two is that we are -- we have for years built big, robust, highly automated instrument systems, that you can place in a lab and they just work over and over again, day-in and day-out. That's a new skill with many smaller companies are building for the first time. Three is unlike some of the new entrants, we were actually participating in the market and engaging with hundreds of customers every day, every week and so I think that makes us smarter about what the customer base needs. Then, of course, on top of those, there's a series of technical advantages we have. At NanoString, we've always built every platform to be compatible with formalin fixed paraffin embedded tissue first, and then later come back to adapt it to more call it, esoteric samples, like fresh frozen. So, I think we're always going to have an advantage in that sample type over our competitors. We've also embraced the idea of multi-omics. So, we build all our spatial platforms to be capable of both RNA and protein at the same time, which is going to be another sustainable advantage. And then finally, because we're pretty tuned in, I believe, to the translational market needs, we tend to build platforms that are high throughput and high-plex. And those tend to also, by the way, these are the strongest recurring consumer revenue strength, because plex and throughput correlate with how much people spend on consumables. So, we feel really great about our competitive advantages and are positioning in the marketplace, both on a technical and maybe on a more corporate capability level.
Unidentified Analyst: Great. Brad, thank you for the color and insights. That was very informative.
Operator: Our last question comes from the line of Douglas Schenkel. Your line is now open.
Douglas Schenkel: Hey, guys, thanks for fitting me in at the end here. Just I guess, two or three cleanups. First, you -- I think I remember you guys talking about an expectation heading into Q2 that there wasn't going to be any improvement in lab access. I think the hope was that would be better than that. But I think that's what was factored into guidance. I just want to confirm based on what you talked about in your prepared remarks that it was probably a little bit better than you expected and kind of how you're treating that as we think ahead to the back half of the year?
Brad Gray: Yes, thanks for the question Doug. I believe that our access to labs, meaning how our sales rep got into labs in the second quarter was about in line with our expectations. Most of our sales activity is actually still taking place over the phone and over Zoom. Many of these research institutions, although they're up and running and doing research really aren't eager to have outside vigorous walk in their hallways. I know there sales reps meet their customers in coffee shops on campus, or do work over the phone. So in that regard, I think we're right in line with what we expected. In my lab access, you really meant more kind of the activity levels that are happening inside of the lab using our technology. I'd say that was also more or less in line during the second quarter. I think our nCounter consumable whole room was about where we expected it to be very few to our genomics consumer better than we expected it to be during Q2. So I'd say -- that says, a lot of access, a lot activity levels within line or maybe slightly better than we'd expected in Q2 with all the caveats about the sort of geographically uneven improvements that I mentioned earlier.
Douglas Schenkel: Thank you for that, Brad. And I apologize if I missed this in your prepared remarks, but the 20 net placements or so for nCounter, was that sort of just one of those kind of timing dynamics in terms of why that number wasn't a little bit higher and not necessarily a reflection of something like -- there's a big drop off and attachment rate with GeoMx or something like that. Is that is that just kind of one of those normal quarterly fluctuations we see from time to time?
Tom Bailey: Absolutely. Douglas, this is Tom. If you look back at the first quarter compared to the second quarter, we had a big installed base leap in the first quarter. So you can see some anomalies and so that installed base that happens seasonally relative to the revenue, which tends to give it more smooth brand counters. So another way of answering that question, as we did sell more units that we installed this quarter as compared to the first quarter.
Douglas Schenkel: Okay
Tom Bailey: Revenue has been very, very strong. We feel really good about it headed into the second half of the year, as we mentioned about prepared remarks.
Douglas Schenkel: Okay. Thank you.
Tom Bailey: The good deal in second quarter.
Douglas Schenkel: Okay, sorry to interrupt. And thanks. Thanks for that. My last one is really on it's sort of a 2022 question. So I'll totally understand if you don't want to go there. But based on what you're seeing, I guess I'm just wondering how you're feeling about, I guess it's kind of related to what I just asked about, like how you're feeling about the ability to keep placing nCounter not just over the next two quarters, but over the next several quarters, that are really influenced by the continued interest in GeoMx. In my model, you know, I actually have the pace of encounter placements moderating next year, in part because, you know, my assumption is that there's going to be more and more of these GeoMx instruments going in front of sequencers, those things don't have to be mutually exclusive. Right You could, place a lot of GeoMx instruments in front of sequencers. And you could keep influencing and creating demands on the core encounter side. Is it too early to say, you know, look your models way too conservative based on what we're seeing, or you know, for now, do you think that this is a fair way of thinking about a meeting GeoMx demand is going to continue to be robust with the mix replacement is going to increasingly skew to bass with the sequencers?
A – Brad Gray: Yes, great questions, Doug. And as I definitely started on GeoMx. I think you're correct, that GeoMx placements will continue to skew towards NGSV now. That being said, I do not believe that negatively impacts the encounter trajectory, because encounter has a lot of uses well beyond GeoMx out. So you know, year-to-date and actually, if you look back, even the last year, about 20%, of our GeoMx system have been sold within encounter as bundles. But that percentage has been quite stable. So as GeoMx grows, so too does, if we remain at 20%. So too, does, you know, the encounter pull-through on to GeoMx. So that continues to be good. On top of that, we've worked hard to diversify and encounter into areas like immunology and neurology, and I talked on the phone about stem cells that has sustained encounter instrument placements at 2019 rates, really through the first half of this year. So truly, if you look pre-pandemic, kind of right off 2020, and then look at 2021 post-pandemic, replacing instruments that look exactly the same pace. And so I don't see a reason that that was moderate materially in 2022. I think it's conservative the model a little moderation, but you know, really there's not a trend I could point to that would make me expect it or worried about it.
Douglas Schenkel: Okay, fantastic. Thanks, guys.
A – Brad Gray: Thank you.
Operator: And that concludes the Q&A session. I will now turn the call over back to Mr. Doug Farrell, Vice President of Investor Relations. Please go ahead with your closing remarks.
Doug Farrell,: Thanks very much. Thank you, everyone for joining us today. If you did miss any portion of the call, there will be a replay available the next week. We'd ask callers to dial – US callers to dial 1-800-585-8367 and International callers please use 416-621-4642. The conference ID is the same number for both it is 3414117. So With that we will say goodbye and thank you for your time.
Operator: Thank you again for participating. This concludes my conference call. You may now disconnect
